Decades of poor supervision and a dysfunctional fiscal transfer system have turned China’s gargantuan local government debt into one of the biggest threats to the country’s economic growth, as well as foreign investor confidence in the mainland’s financial system.
But, spooked by ballooning debt, the risk of bond defaults and pressure on the local banking sector from non-performing loans, Chinese regulators have accelerated local government financing reforms in the past 24 months.
